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Operating lease incentives early release

Operating lease incentives debtor - change in treatment when property sold mid-lease

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My client has owns a property which is rented out under several operating leases, with rent-free periods being accounted for as a lease incentive prepayment, to be released as a reduction against rental income over the life of each lease.

The property has now been sold (June 2019), and rental income now being paid to the new owners by the original tenants.

Is it acceptable to amend the treatment of the lease incentive in the April 2019 accounts to release the incentive debtor over 06-Apr-2018 to Jun 2019 period - so the bulk of the release will occur in the Apr 19 accounts (and tax return)?

Or should the Apr 2019 accounts remain the same, with the incentive debtor released in full on the date of disposal?

Thanks,

Jon

Replies (5)

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Tax Manager
By Dynamo1224
29th Aug 2019 17:13

I think option A is most prudent unless the amount due to be released in May and June is trivial.

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By paulwakefield1
30th Aug 2019 08:44

I realise that this is probably an individual but, if it was under FRS GAAP, it would depend on the status of the sale at the period end. If the sale was not certain (e.g. pre exchange) then, in my view, it is a non adjusting event and the release should occur in the later period.

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Replying to paulwakefield1:
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By johnt27
30th Aug 2019 13:14

I definitely agree with this point of view. Unless the sale was certain there's no conceivable way of justifying early release of the rent free balance.

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Hallerud at Easter
By DJKL
30th Aug 2019 09:15

When sold /at settlement re the property sale was there a need to apportion/adjust re rentals received up to date of sale between the seller and the purchaser - cash adjustment re the price?

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Replying to DJKL:
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By jonathanw
30th Aug 2019 14:33

Thank you...

The disposal was made on the beginning of the next rental period and all rental for that next period was due to the buyer.
I don't know if it makes any difference, but the disposal was to a related company.

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